When asking bankers in Asia-Pacific (Apac) about
securitization, the response has often been a disinterested
shrug.

The rise of securitized products in markets such as the US
and Europe was, for various reasons, never replicated on a
large scale in Apac. This simply wasn’t something
that was understood or wanted in the region… or so they
said.

As 2014 unfolded, there were signs that even the most
hardened of the naysayers was thinking again. And as with many
things in Apac,
it was China that was starting to change things.

China has simplified the issuing process. In
securitization, the automobile market will be the big
one for next year

Kyson Ho

"At the time, they were mainly selling to offshore
investors. Then came the crisis and liquidity tightened up. The
securitization market in Asia never really had a strong
regional investor base as it just wasn’t big
enough to grab people’s interest. But what has
changed is the growth of China’s onshore
securitization market."

He adds: "Since 2012,
local regulators and players have started to look into how
these products would work in practice under the reopened
market. Before 2014, there were mainly domestic offerings by
banks. Since 2014, the Chinese government has allowed certain
Chinese subsidiaries of foreign entities to issue securitized
products."

These changes by the Chinese authorities appear to have had
a number of effects on the fledgling securitization market,
boosting the amount of business done in the space in a fairly
short period.

"As a result, we went from having very little issuance to
having seven deals between May and the start of December,
especially in the automobile space," continues Ho. "These
offerings have brought in international investors and
international structures.

"Before, these products were structured to meet domestic
standards. Now, some have international ratings. Interest from
international investors has risen because the products are
linked to international names."

Automobile market

An example of a deal that HSBC worked on last year was an
RMB799 million auto ABS from Volkswagen Finance. HSBC acted as
financial advisor and sub-underwriter. The closing date was
August 1, 2014.

"The limits on deal amounts in China have been lifted, so
expect some larger deals next year," adds Ho. "There will
probably be some deals in the first quarter.

"Also, China has simplified the issuing process. In terms of
securitization, the automobile market will be the big one for
next year. You will also see activity from Chinese subsidiaries
of foreign banks. I see the market growing by around 2.5-times
next year."

Other bankers agree the automobile market is one of the
primary drivers of the growth in securitization within China,
and could be the catalyst for further business in 2015.

"There is a growing need for auto financing from consumers
in China," says a senior banker based in Hong Kong. "This is
reflected in the spike in leasing-related transactions. I would
not be surprised if there is more out of China in the
automobile space next year.

"I’m not too sure about the legal side of
things cross-border; whether the legal framework is
sufficiently laid out for cross-border. Most of the stuff
I’m aware of is … domestic. The local
securitization market has just started. I think investors are
ready to do more, but whether international issuances are going
to be properly structured is uncertain."

Although it is clear that the market is building in China,
there are still those that remain unconvinced the level of
sophistication exists in Asia to support the growth of
securitization.

"The multiple layers of financial infrastructure I
don’t think have been built out in Asia," says
another senior Apac banker. "There’s a huge
education process needed on that. It’s a specific
buyer base internationally. For the investment banks,
it’s considered very resource intensive with
marginal returns.

"It’s sector or asset specific, not country
specific. I think a lot of the European banks have been focused
on that market and we are hearing that others are spending more
time on it."

The banker adds: "I know some of the domestic banks have
been involved in securitization for quite a long time. There
has been some on the aircraft leasing. It’s
probably the domestics that will have the lion’s
share of that market.

"A US bank would have to get comfortable with the fact that
some cars in China don’t have any sort of
individual identification number like they do in the US."

However, despite the obvious issues in developing the
industry, the growth of securitization in China looks set to
continue into 2015 and beyond. And it appears that this trend
is one that might mark the end of the disinterested shrugs when
the business is mentioned in the future.

Further reading on Euromoney

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